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Monday, 4 November 2013

Berjaya Auto: Soul Of Motion

In year 2008, Bermaz was awarded the distributorship of certain Mazda CBU (Completely Built-Up: Imported) vehicles. Since then, Mazda vehicles are getting more and more common on Malaysia's roads.

Because of the success of Bermaz, Mazda Japan has renewed the distributorship agreement with Bermaz twice and the latest will only expire in 31 Mac, 2019.

Now Bermaz, through Berjaya Auto Sdn Bhd (BAuto) which was incorporated in May 2010, will be listed in Bursa Malaysia main board tentatively on 18 Nov 2013 to raise RM57.9 million.

From 2008 until now, Bermaz is involved in the import of Mazda CBU vehicles from Japan/Thailand. From year 2009, Bermaz has started its CKD (Completely Knocked-Down: locally assembled) program in which the Mazda 3 was the pioneer. Now the CKD model is extended to the CX-5. Both Mazda 3 and CX-5 are the best selling models in Malaysia.

The CKD vehicles are assembled in a third party assembler plant Inokom in Kulim. They will be exported to other countries besides being sold to local market.

CKD for Mazda is essential as locally assembled cars will be priced more competitively to its rivals Toyota, Honda, Nissan etc which are also CKD in Malaysia.

However, BAuto only has 30% share in its CKD segment in MMSB. The rest are owned by Mazda Japan.

RM mil

Revenue

PAT

PAT %

2010

266.8

14.1

5.3

2011

592.6

36.1

6.1

2012

663.6

40.7

6.1

2013

1064.3

52.0

4.9

BAuto's past financial results are quite impressive. It records consistent growth in revenue and profit since 2010. Its net profit margin has been at 5-6%.

BAuto's IPO is priced at 70sen per share. It has total shares of 803 million and thus a market cap of RM562 million. Base on its FY2013 profit for shareholders of RM52mil, its EPS will be 6.3 sen and PE ratio 11.1x at 70sen per share.

BAuto does not have a fixed dividend payout policy, but if circumstances allow, it will pay up to 40% of its net profit as dividend. If it pays 40% for FY2013, then it will be 2.6sen per share of dividend yield 3.7% at share price of 70sen.

Mazda: from 0.3% to 2.7%

Is BAuto a good stock to own? Well, its business model is very simple. If more people buy Mazda cars, profits & share price of BAuto will rise and investors will gain.

Automotive sector is quite competitive in Malaysia. Because of protection from the government, throughout the history national car makers (Proton & Perodua) have taken up more than 50% of the market share in term of total sales volume. The rest is up for other non-national car makers to grab.

Every Malaysian is aware that the most popular non-national car brands are Toyota, Honda & Nissan. However, in recent years, other cars especially the Korean & European brands have taken the market by storm.

Mazda vehicles have taken up higher market share each and every year since it was distributed by BAuto in 2008. If Mazda wants to remain competitive in Malaysia, it should have:

Attractive design

I think Mazda's car design is impressive since the Nagare era. Its latest design Shinari Concept which is seen in its CX-5 and new Mazda6 in Malaysia, is nothing but outstanding. Anyway, design is subjective and everyone has different taste. However, from the response of its CX-5 here, I think it is very well-accepted.

KODO - Soul Of Motion Shinari Concept

Advanced technology

Mazda newly launched SkyActiv Techonology, which is also found in its CX-5 and new Mazda6, consists of brand new engine, transmission, body & chassis. Its SkyActiv-G engine has the world's petrol engine highest compression ratio of 14:1 which translates into 15% better fuel efficiency. New models in the future will certainly switch to this.

Attractive package

This depends on the management of BAuto to add whatever gadgets and engine variants in its vehicles to attract buyers and stay competitive.

Attractive price

This will also depend on BAuto's management and other industry players who slash price to win customers. CKD models will help to boost up sales even though some car enthusiasts may insist on CBU.

Service convenience and quality

More 3S centers and dealers with trained and qualified sales & service personnel. Fund raised from IPO should help to improve this area.

Overall, Mazda Japan has already provided great vehicles to BAuto. It is up to BAuto to find ways beat its competitors. BAuto's CEO Dato Yeoh is someone who has vast experience in Malaysia's automotive industry.

Mazda, Hyundai, Kia, Peugeot, Ford & VW will certainly erode Toyota, Honda & Nissan's market share in the future. Among all these brands, I think Mazda has the cutting edge.

Mazda needs to ensure that it will consistently roll out new models and facelift its vehicles. Mazda2 which are imported from Thailand since 2010 is running out of steam at the moment. Mazda3 which is the latest model in the new Shinari design should be able to boost Mazda's sales in the near future. However I believe this 2014 Mazda3 will not reach Malaysia's shore so soon, probably 2015?

2014 Mazda3 hatchback

So, currently BAuto will depend on mainly CX-5, new Mazda6 & commercial pick-up BT-50 to support its top and bottom lines.

If you think that hybrid and electric vehicles are the near future trend, then Mazda may not be in a good position. Mazda has just launched its 2014 Mazda3 in Japan last month. The launch includes Mazda3 hybrid under licensed from Toyota Hybrid Synergy Drive System. Overall, Mazda now concentrates on its latest SkyActiv petrol & diesel engines, so it may not be able to compete with Toyota & Honda in hybrid cars area.

Mazda CX-5

Through its 60% owned subsidiary Berjaya Auto Philippines, BAuto started to distribute Mazda vehicles in Philippines since FY2013. For FY13 ended April 2013, Philippines contributes just 5.2% of BAuto's revenue. Philippines is one of the lowest car ownership in the world, which is 9 cars per 1000 people, compared to Malaysia's 300+ cars per 1000 people.

BAuto will not have the opportunity to venture into Mazda vehicles distributorship in other Asean countries besides Philippines, as all other countries already have their own distributors appointed by Mazda Japan. However, BAuto may export its CKD vehicles to them just like the export of CX-5 to Thailand.

Since 2010, I always think that Mazda will be successful in Malaysia and globally. This have not changed until now.

I did not apply for any IPO before and will not do so. However, among all the IPOs that I have studied, I would say that BAuto is the one that excites me the most, as I am a fan of Zoom-Zoom...